Senate Hearing on Extending the MLP Rules to Renewables

by Akin Gump Strauss Hauer & Feld LLP
Contact

On July 31, 2013, the Senate Finance Subcommittee Energy, Natural Resources, and Infrastructure held a hearing on the Master Limited Partnership Parity Act (S. 765). The bill would extend the master limited partnership (MLP) tax rules to renewable energy assets. The MLP rules provide a means to raise equity from retail investors while avoiding the “corporate” layer of income tax. These rules and the proposed legislation are discussed in the post below. Click here to see a link to our March 12, 2013, blog post.

The bill is sponsored by Senators Coons (D-DE), Moran (R-KA), Murkowski (R-AK) and Stabenow (D-MI). It also has bi partisan support in the House. Senator Stabenow chairs the subcommittee that held the hearing, so she made the opening remarks, and her written comments avoided directly referencing the bill.

Senator Coons is reported to have said that the bill “has the potential to bring a significant wave of private capital off the sidelines”. 1 His written testimony provides the following: “In summary, access to low-cost financing will define our nation’s energy future. It will determine how, when, and which energy sources emerge as the central players in the American energy marketplace in the long term.”2

Senator Moran is reported to have noted that the oil and gas industry raised more than $23 billion in equity in 2012 using MLPs.3 His written testimony provides the following: “It is important to note that the MLP does not represent a ‘tax break’… . Rather, it is a tax simplification structure that concentrates tax at the investor level, avoids double taxation, and significantly broadens the potential investment base.”4 The spirit of this testimony is admirable, but how does the senator define “tax break” if it does not include avoiding the corporate layer of income tax? Or is a “tax break” only a reduction in taxes advocated by one’s opponents? 

Here are some highlights from Senator Stabenow’s written opening remarks:

  • “We need a ‘do it all’ approach when it comes to energy production … But we can’t have a true ‘do it all’ approach if we support one technology with 100-year-old tax credits5 while ignoring emerging clean energy technologies.”
  • “China is spending over $178 million per day on clean energy technologies.”
  • “There are 8,000 parts in a wind turbine, … and we can make every one of them here.  During 2012, wind energy became the number one source of new U.S. electricity generating capacity, providing 42% of all new generating capacity and supporting 75,000 jobs nationwide. The solar industry employs 119,000 people - up 13% from 2011 -representing one of the fastest growth rates for any industry.  Solar prices have declined by 60 percent since 2011.”
  • “We must engage in the global race to lead the world in these new technologies, or risk falling further behind other countries.  We need to seize the opportunity before it is too late.  And tax reform is that opportunity.”6

The bill should be enacted but not as a trade for production or investment tax credits. Dan Reicher of Stanford Law School acknowledged this in his testimony: “I want to emphasize strongly that my support for MLPs and REITs should in no way signal that I endorse an immediate phase-out of PTC or any weakening of the current ITC.  The PTC and ITC have been critical catalysts in the growth of U.S. renewables” (emphasis in the original).7 It would have been helpful if Mr. Reicher could have made this point in the June 1, 2012, New York Times editorial that he co-authored that advocated for MLPs.8 That editorial appears to have spawned the idea in the Washington consciousness that MLPs (or real estate investment trusts (REITs)) were a fair trade for the tax credit regime.

The bill will provide two critical improvements for the renewables industry: (1) it will enable private-equity-fund-backed developers to trade their private equity investors for less expensive retail investors and (2) a liquid market for renewable energy projects that are beyond the tax benefit period (e.g., beyond the five year recapture period for investment tax credits or the 10-year production tax credit period).

Further, it is important to keep in mind that the bill does not solve the industry’s largest challenge - a shortage of tax equity. MLPs, as contemplated by this bill, will not be able to effectively pass through tax credits or accelerated depreciation to their unit holders who are individuals due to the passive activity loss rules and the at-risk rules in the Internal Revenue Code. Therefore, the low cost of capital of MLPs will not be competition for the small cadre of tax equity investors that currently set the market for tax equity, but it will compete with sponsor/developer capital providers.


1 Shreve, Meg.  Senators Urge Expanding Master Limited Partnerships, 2013 Tax Notes Today 148-7 (Aug. 1, 2013).

2 The written testimony of Senator Coons is available here

3 Shreve, Meg.  Senators Urge Expanding Master Limited Partnerships, 2013 Tax Notes Today 148-7 (Aug. 1, 2013).

4 The written testimony of Senator Moran is available here.

5 “[T]ax credits” appears intended to refer colloquially to provisions in the Internal Revenue Code that reduce a taxpayer’s current tax liability (e.g., percentage depletion) because I cannot identify a fossil-fuel-specific “tax credit” that is still effective and has been for the last 100 years.

6 Senator Stabenow’s written testimony is available here.

7 Mr. Reicher’s written testimony is available here.

8 http://www.nytimes.com/2012/06/02/opinion/how-to-make-renewable-energy-competitive.html?pagewanted=all&_r=0

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP
Contact
more
less

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!